Industry Insiders _Not_ Surprised that Utilities Like Microgrids

So it turns out that utilities like microgrids, contrary to the notion – almost lore – that they dread them as economic disruptors or technical headaches.

In fact, utilities view microgrids as a business opportunity.

That was the finding of a recent project that I had the pleasure of working on with the nice folks at Utility Dive, who surveyed about 250 industry executives about their views on microgrids.

Interestingly, 97 percent of utilities surveyed expect microgrids to be a utility play in the next decade. About half see themselves in the microgrid business even sooner, within five years.

“This defies the perception of utilities as often slow to innovate and resistant to disruptive change. It indicates that microgrid development will ramp up quickly in the near term, given that utilities are the dominant players in the electric power industry,” we wrote in the survey analysis.

After Utility Dive released the results, I asked some microgrid vendors, developers and leaders for their thoughts about the microgrids and the utility role. They weren’t surprised by the utility interest in microgrids. It jives with what they are seeing in the marketplace.

Uptick in utility inquiries

“This is exactly what I’ve been saying internally to my company,” said David Chiesa, S&C Electric’s director of commercial, industrial, & microgrid sales.

Two years ago the microgrid market was dominated by government and military projects, Chiesa said. Now utilities are entering. He has received 26 inquiries from investor-owned utilities in recent months, with additional requests from public and municipal utilities.

Some are tentatively looking; others are undertaking demonstration projects to show regulators that microgrids can decrease costs, increase reliability and performance, and improve service, he said.

“In the early days, while the utilities were definitely not adopting microgrids at any kind of scale , they always seemed very interested in the technology – in at least getting demonstrations together, so that they could understand it and know how it works,” said Darren Hammell, co-founder and chief strategy officer of Princeton Power Systems.

Today, the company finds itself increasingly in meetings with utilities that want to scale up a microgrid model, he said.

Larisa Dobriansky, General Microgrids’ senior vice president regulatory and energy policy, sees utilities increasingly “recognizing that smart microgrids can serve as grid resources/tools and as an important building block for developing a smart integrated grid, especially in terms of harnessing and managing proliferating distributed energy resources for the benefit of the grid and market.”

Of course, utility interest in any competitive market can be a double edged sword. On the one hand, they bring influence, a strong balance sheet, and access to capital markets that can kick-start an industry. On the other hand, there is fear that utilities will use their monopoly power to dominant the market and shut out independent companies.

So some words of caution were offered by those who for years have witnessed the tension between monopoly and competitive forces in the electric power industry.

Robert Thornton, president and CEO of the International District Energy Association, said that it is encouraging – and makes sense – that utilities would see microgrids as a viable business opportunity. But “electricity production and distribution is not the sole bastion of investor-owned utilities,” he said. “There are dozens of exceptionally efficient, reliable and economically competitive district energy/CHP systems in operation across the country who run in parallel with the grid.”

Regulators need to ensure and expand access to non-utility participants, such as industrial, institutional, municipal and district energy microgrids, he said.

UT Austin. Credit: Kumar Appaiah

IDEA members have been operating microgrids for years. (See examplesof Princeton University and UT Austin.) Utilities could benefit from their lessons learned in designing, owning and operating microgrids and achieving “very high efficiencies with notable reliability and resiliency at the 20 to 135 MW scale,” Thonton said.

“It would be a shame if utilities simply proclaimed interest in the microgrid market and then failed to act on investment opportunities or to adopt the business best practices already learned by many IDEA member systems,” Thornton said.

He added that “the highway is littered with cast-off utility investments in ESCO’s or HVAC companies that failed to meet regulated ROE thresholds or failed to scale up quickly enough to retain the attention span of large investor-owned utilities more accustomed to managing their business with rate base addition and rate case filings.”

Ed Krapels, founder of Anbaric Holding, a company that develops both transmission and microgrids, says that like transmission, microgrids offer utilities both opportunity and challenges.

“Generally, in the coming decades, utilities will have a choice to participate in both transmission and microgrid development outside their footprint. Even though, at the moment, some utilities are finding cover in existing state regulatory structures (some of which are more incumbent-friendly than others), there’s no question that in the long run, competition in both the transmission and distribution sectors is here to stay,” he said. “In the microgrid space, it’s already apparent that some utilities will play offense by teaming up with or acquiring smaller, more entrepreneurial firms like Anbaric; others will play defense and try to perpetuate the advantages of incumbency.”

Krapels added: “One would expect that, in the long run, competition will result in more innovation, so state regulators will have to decide where they want to be in the innovation spectrum.”

So what is the bottom line? The microgrid market is shaping up to be both a utility and independent play. It’s far too early to discern the eventual balance between the two. It is interesting to note, however, that about 43 percent of the utilities surveyed see partnerships forming between utilities, independents, public entities and universities to own and operate microgrids.

Much will depend on the rules that regulators enact for microgrids. They are just beginning to consider them. Right now, we’re closely watching policy action in Maryland, Massachusetts and New York, which could influence not only those states, but also others that may follow their lead. For an overview of the regulatory landscape see our report, ‘Think Microgrid,” downloadable free of charge, courtesy of the report’s underwriters: the International District Energy Association, Schneider Electric and Microgrid Knowledge.

And do take a look at the Utility Dive survey results, The Utility View of Microgrids. The findings offer insight into how utilities think about microgrids in terms of opportunity, rates, load, incentives and grid management.

Elisa Wood is the chief editor of MicrogridKnowledge.com. She has been writing about energy for more than two decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.

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